Managed Care Economics

Issues of Concern

Types of Managed Care Organizations

From an economist's point of view, managed care was the impetus for the growth of for-profit organizations in health care, which was predominantly operated by non-profit organizations for ages. Managed care has become a beacon of hope for employers to generate hospital revenue through cost control and utilization management. This cost containment concept leads to different managed care organization models based on various networks. However, 3 major managed care organizations gained recognition over the years. The managed care models (market plans) range from more to less restrictive. As mentioned previously, 1) HMOs are the first form of managed care organizations that fall under the more restrictive category, followed by 2) Physician Provider Organizations (PPOs), less restrictive, and 3) Point-of-Service Plans (POS), the combination of HMO-like and PPOs features, thus blurring the managed care landscape.

Health Maintenance Organizations (HMOs)

An HMO involves preventive medical care services, capitation, prepaid premiums, a limited panel of primary care physicians (PCP), and specialists. HMOs frequently require healthcare plan members to choose physicians and hospitals in-network and only pay for the services obtained from in-network, making it more restrictive. Financial risk-bearing for providers is 1 of the main concerns on the HMO part; for instance, PCPs must share financial risk with specialists. HMOs usually use capitation, risk pools, and withholds to control physician and patient behavior, consequently controlling overutilization to achieve cost containment.

Preferred Provider Organizations (PPOs)

PPOs involve selective contracts with physicians and hospitals, discounted fee arrangements with providers, negotiated charges for diagnosis-related groups (DRGs) with hospitals, and flexible panels of providers. The patient can choose physicians from out-of-network in this healthcare plan, but it incurs high-cost sharing. Prior authorization is generally necessary for hospitalization and high-cost outpatient procedures. PPOs provide flexibility and risk-sharing for both providers and patients, making PPOs less restrictive. Despite having higher premiums, PPOs became more popular than HMOs.

Point of Service (POS)

POS provides a combination of HMO-like and PPO-like options. Patients have to choose a PCP but can select from out-of-network providers. This plan allows patients to choose their physicians and care of their choice. Employers favor this plan for their employees with higher premium arrangements without fear of losing coverage if a patient or employee goes for out-of-network providers. Managed Care plans were fully or partially implemented throughout the U.S., making MCOs ubiquitous. About 16% of insured workers nationwide were enrolled under full risk-bearing HMOs, and an additional 49% enrolled in partial risk-bearing or discounted fee-for-service PPOs.[1]

Effect of the Affordable Care Act (ACA) on Managed Care

In legislation, the enactment of ACA in 2010 was considered to have significantly impacted the American healthcare system since the passage of Medicare and Medicaid during the 1960s. Patient Protection and Affordable Care Act (PPACA), often referred to as "ACA" or "Obamacare," was the first of its kind to be increasingly consumer-driven and made MCOs accountable for their members/enrollees and the services provided to them. Among the ACA's many provisions, managed care plans were taken to a new level in the healthcare market. HMOs penetrated the healthcare market and peaked during the mid-1990s, followed by a plateau. From 2001 to 2009, HMO enrolment declined from 91.1 million to 75.3 million. Managed care has become a mature industry that has become a primary form of health insurance in the private sector, and states have enrolled more members under Managed Care Medicare and Medicaid plans. Under ACA provisions, HMO enrollment increased from 2014 (84.8 million) to 2015 (89.3 million). However, PPOs continued to rise after the 1990s due to acquisitions and mergers in the market and still maintained their growth. Under the ACA, PPOs emerged as powerful players in the market from 2008 to 2015. The number of PCPs contracted per PPO rose 56.3% (from 3,595 to 5,618), and specialists rose 92.4% (from 6,962 to 13,397).[6][7][1][8][9]

Regulation of Managed Care

Since the 1980s, managed care has exploded, resulting in widespread complaints and negative publicity against managed care. In response to this negative criticism, state and federal governments imposed laws and regulations to protect both consumers and providers to a certain extent. The 3 federal laws, ERISA, COBRA, and TEFRA, mainly affect managed care with rapid expansion. ERISA stands for Employee Retirement Income Security Act of 1974; it shields managed care organizations from malpractice lawsuits when they fall under an employee group health plan governed by ERISA. Under ERISA, any negligence claims against ERISA-managed care health plans for injuries resulting from physicians' malpractice, overutilization, improper treatment plans, and denial of plan benefits can be subject to veto.[10]

TERA stands for the Tax Equity and Fiscal Responsibility Act of 1982. This legislation was created to reduce budget gaps and generate revenue. In healthcare, TEFRA required the conversion of hospital Medicare reimbursement from cost-plus to the prospective payment system (PPS) based on diagnosis-related groups (GRGs). Under PPS, hospitals receive a fixed amount based on patients' principal diagnosis. Hospitals have to reduce inpatient days to improve hospital revenue and earn profits. Under the TEFRA program, managed care organizations flourished as the main goal of managed care is to generate revenue by controlling costs and overutilizing hospital services.[11]

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act of 1985, providing temporary access to previous employers' health coverage under certain events such as unemployment. COBRA coverage usually lasts for 18 months or sometimes extends up to 36 months, depending on the nature of the event. This federal law protects consumers from organizations such as MCOs through temporary access to full health insurance coverage.[12]

Clinical Significance

Managed care penetration in the US is associated with higher rates of preventive services utilization, such as vaccinations and disease screenings, in the general population. Also, Managed care penetration is linked with a reduction in utilization of inpatient procedures, especially among Medicare Advantage (MA) beneficiaries, which results in lower inpatient complications and reduced mortality rates. American Hospital Association conducted a cross-sectional study to examine the effect of Managed Care among Medicare patients and privately insured patients versus fee-for-service patients. The results showed that among managed care privately insured patients, declining inpatient mortality rates were observed for acute myocardial infarction (AMI), stroke, pneumonia, and congestive heart failure (CHF) compared to FFS patients. However, Medicare-managed care patients had similar outcomes compared to Medicare FFS. Among state-wide Medicaid programs, 77% of Medicaid patients were enrolled in some form of managed care, and results showed better quality outcomes in preventive services, maternity care, and patient experiences than Medicaid programs without managed care plans. As per previous studies, the effect of managed care penetration on overall hospital costs was cost-effective. For instance, in California, with 40% managed care penetration in market share, there was an evident 25% slower growth rate in hospital costs.[13][14][8][15][16][17][9]

Nursing, Allied Health, and Interprofessional Team Interventions

Utilization Management (UM)

Managed care emanates from the basic concept of monitoring and controlling the utilization of medical services by a team approach. In simple economic terms, total healthcare costs result from 2 variables: price and volume. As discussed previously, capitation, reimbursements of providers, bundled payments, etc, describe price concept, whereas volume mainly speaks about medical services utilization. In the organizational context, utilization management is interchangeable with utilization review (UR). Shi & Singh (215) define utilization review as "evaluating the appropriateness of services provided." UR can be used in various healthcare sectors depending on the services provided. For instance, Drug UR practices address the utilization and cost of prescription drugs. UM or UR broadly divides into 3 categories: 1) Prospective, or before the event occurs; 2) Concurrent, or while the event is occurring; 3) Retrospective, or after the event has occurred; and all these reviews serve to identify cases for case management intervention, where cases with chronic illness with multiple complications or catastrophic events requires larger expenses and result in substantial costs.[18][19][20]

Prospective Utilization Review: This concept applies to major categories such as health risk appraisals, demand management, referral, and institutional services. A classic example is the advanced Medicare HMO. A managed care organization intervenes in cases where patients or members require extra services to lower overall costs. For instance, when a new member joins the plan, in addition to data-gathering forms, patient history, and physical exams, a nurse is sent to home aid to check nutritional assessment, prescribed medications, and other simple interventions such as providing bathmat to prevent falls for older patients and save costs of care later in their treatment.

Concurrent Utilization Review: This review solely referred to inpatient care and case management, where continuous review is necessary, such as in inpatient cases. Assignment and tracking of the length of stay (LOS), review and rounding by UR nurses, and discharge planning are commonly used techniques for concurrent review. For example, suppose the patient is admitted with a hip fracture. In that case, the on-site UM nurse should gather information and plan discharge accordingly to the home with subsequent home health services and the need for durable medical equipment (DME) or skilled nursing facilities (SNF). In a nutshell, UM/UR nurse plays a key role in gathering information and coordinating medical services to the patient from admission to discharge while complying with the LOS guidelines to help in cost savings and generate revenue for the hospital.

Retrospective Utilization Review: This review refers to the quality of care at the right time and place and billing errors. MCOs usually intervene in regularly reviewing providers to see any patterns of over or under-utilization of medical services or providers continuously making errors in the care plan and testing. MCOs usually provide physician performance data to individual physicians to compare their performance with peers. That feedback would help them modify their practices as appropriate to help curtail overall healthcare costs and improve the quality of care.

Nursing, Allied Health, and Interprofessional Team Monitoring

Case Management 

The widely accepted definition of case management by accrediting bodies such as Case Manager Certification (CCMC) is "A collaborative process which evaluates, plans, implements, coordinates, monitors, and assesses the options and services required to meet an individual's health needs, using communication and available resources to promote quality, cost-effective outcomes." The central concept of case management is that all cases do not require a continuum of care or have a high demand for medical services. Only a small portion of patients were chronically ill and needed continuous monitoring and care coordination, but they utilized the most services, resulting in considerable healthcare costs. The care management team's key role is to identify and track those complex cases, which usually slip through the cracks in the healthcare delivery system because of the requirement of care from various departments and different levels of care. High frequency of admissions in a short period and longer LOS after surgical hospitalization with multiple complications are a few examples where case managers need to be competent in clinical knowledge and play a key role in curtailing the costs of utilizing expensive medical services. Some examples of complex cases include preterm delivery, a CVA suffered by a teenager, a spinal cord injury, etc.[21]